Prospects for 2004 paddy crops deteriorate in some major producing countries

FAO’s forecast of global paddy production in 2004 has been reduced by 5 million tonnes since the previous report in June, to 608 million tonnes (406 million tonnes, in milled equivalent). The reduction comes as a result of deterioration in prospects for crops in several major producing countries including Bangladesh, Brazil, India, Malaysia and Philippines, which more than offset improved outlooks in China (Mainland), Egypt, Indonesia, Japan, Peru, the United States and Viet Nam. Nevertheless, at the forecast level, global output would still be 4 percent up from 2003 and the highest level since 1999. However, the final outcome of the world 2004 rice crop will still depend greatly on weather conditions in the coming few months when many countries in Asia will either be harvesting their main crops or growing secondary ones. In this context, it should be noted that several climatic monitoring agencies are indicating the possible development of a weak El Niño weather event in the coming three to six months, which adds extra uncertainty to this year’s outlook.

In Asia, paddy crops are reaching maturity in the major producing countries in the northern hemisphere. Following the opening of the Monsoon, several countries were affected by torrential rains in June, July and August, which caused severe flooding in the case of Bangladesh, eastern India, southern China, the Taiwan Province of China, Japan, the Republic of Korea, Myanmar, Nepal, north-eastern Thailand, and Viet Nam. Some of these countries had previously suffered from localized drought problems that constrained plantings and crop development, in particular in some important paddy producing states in northwest India, but also in Malaysia and Nepal. In many of the flood-affected countries, damage to the main rice crops could still be mitigated through replanting or through an expansion of the forthcoming irrigated secondary crop, which will benefit from abundant water reserves.

Given the gravity of the floods, however, some negative impact on production in the affected countries is inevitable. In India, production is now foreseen at 127.5 million tonnes, almost 9 million tonnes below the previous forecast and 3 million tonnes less than in 2003. The forecast of production in Bangladesh in 2004 has been lowered by 2 million tonnes to 38.3 million tonnes, which would imply a 2 percent drop from last year, as both the Aus and the Aman rice crops were reported damaged. The deterioration of the 2004 outlook also resulted in revised forecasts for Malaysia and Nepal, now seen to produce less than in the previous year. A reduction is also anticipated in Sri Lanka, where adverse weather conditions dominated earlier this year. By contrast, China (Mainland) recently raised its crop forecast to 180.7 million tonnes, 12 percent above 2003 and the highest level since 2000. Much of the potential increase envisaged this year comes in response to rising market prices but also government incentives, such as the re-introduction of minimum “protective prices”, input subsidies and tax relief. Indonesia’s official production forecast has also been revised upward to a record 53.7 million tonnes, 3 percent more than last year, on account of a 300 000 hectare expansion in plantings. Excellent growing conditions in Japan have boosted yields and made production rebound to its highest level since 2000. In Viet Nam, official figures now point to a 2 percent gain in production compared with 2001, contradicting earlier expectations of a drop. Increases from last year continue to be foreseen in the Philippines and Thailand. A full recovery from the 2003 season setback is now anticipated in the Republic of Korea based on the newly released official production forecast.

In Africa, aggregate paddy production is expected to rise by 3.5 percent from last year, to almost 19 million tonnes. Most of the gain is expected in Egypt, where output is forecast to reach 6.5 million tonnes, 5 percent up from last year, partly reflecting a 2 percent increase in plantings. In western Africa, Nigeria may achieve a modest increase in production as a result of the present “Rice Initiative” and the dissemination of Nerica rice varieties. A large Desert Locust upsurge currently affecting the subregion is giving serious cause for concern and may adversely affect output if not adequately controlled in the coming weeks (See box on page .....). Elsewhere in the region, adverse weather conditions in the first half of the season depressed production in Mozambique. In contrast with earlier expectations, production in Madagascar is officially estimated to have risen in 2004, to about 3 million tonnes. The increase reflects a redistribution of rainfall, whereby crop losses caused by the two cyclones in the north of the country in early 2004 were offset by increased production in other parts of the island.

In the Latin America and the Caribbean region, the 2004 season is virtually over in the southern countries, while in most of Central America and the Caribbean, paddy crops are at advanced stage of development. Based on the latest official figures, production has increased quite significantly in Argentina, Bolivia, Brazil (despite a recent downward revision), Colombia and Uruguay compared to 2003. By contrast, output has fallen in Chile, Ecuador, Guyana and Peru. In Central America and the Caribbean, paddy crops have been hit by adverse weather conditions and, recently, by the passage of hurricanes. Following a deterioration of prospects for the season, production is set to fall from last year in Costa Rica, Cuba and the Dominican Republic. However, output in 2004 is expected to rise by 18 percent in Mexico, following increases in both area and yields.

Elsewhere in the world, the paddy production forecast has been revised upward in the United States since the previous report in June. The first survey-based outlook now points to a record paddy output of over 10 million tonnes this year, or 11 percent above last year. Output is also expected to be up in 2004 in the EU-25, reaching 2.7 million tonnes, after modest increases in planting in the major producing states. The official production forecast in Australia, however, was lowered to 535 000 tonnes, which remains far better than in 2003, but still less than half the level in 2002, reflecting drought in parts of New South Wales, the only rice-producing state.

Rice trade forecast for 2004 revised upward but still short of the record level in 2002 and 2003

Global rice trade in 2004 is now forecast at 26.5 million tonnes, about 800 000 tonnes up from the forecast in June but still 6 percent less than the 28.1 million tonnes record level traded in both 2002 and 2003. The increase since June, partly reflects prospects for larger deliveries to African countries, which have intensified their purchases in recent months. As a result, aggregate imports to the region are foreseen to reach some 8.6 million tonnes, up from the previous forecast of 8 million tonnes and 300 000 tonnes more than last year. The revision was mostly on account of Nigeria, which could purchase some 1.6 million tonnes in 2004, 300 000 tonnes more than previously anticipated. Benin, Ghana, Senegal and South Africa are all seen to import more than last year, in spite of the much higher international prices. Fast-growing demand, often associated with urbanization, has continued to spur rice imports to the region. In Asia, the forecasts of imports by Bangladesh, Malaysia and the Philippines were all revised upwards following a deterioration of the production outlook in these countries. In the case of Bangladesh, the forecast was doubled to 800 000 tonnes, which nonetheless remains at less than half the level imported in 2003. However, the outlook for imports is still pending a firm assessment of the flood impacts on the crop and on-farm stocks. The forecast of shipments to the Democratic Republic of Korea was also raised to 700 000 tonnes as both Japan and the Republic of Korea have confirmed their commitment to keep supplying the country with rice food aid this year. By contrast, the forecast for Indonesia was lowered to 1 million tonnes, sharply down compared to 2003, following the extension of a rice import ban until December. The forecast for the Islamic Republic of Iran was also cut and now shows a small reduction compared with 2003. Purchases by China (Mainland) continue to be forecast at 800 000 tonnes, compared with less than 300 000 tonnes last year. In the other regions, the forecast of rice deliveries to Cuba has been raised to 600 000 tonnes, or 50 000 tonnes more than last year, to compensate for a production shortfall caused by drought. Also raised since the previous report were the import forecasts for the United States, to a record 500 000 tonnes, and for Brazil, to 700 000 tonnes, which would nevertheless still be well short of the 1.1 million tonnes of 2003. By contrast, the import forecast for the Russian Federation was adjusted downward to 400 000 tonnes, reflecting a slow pace of deliveries up to May. The 2004 import forecast for the enlarged European Union (EU-25) remains at 880 000 tonnes, although there is considerable uncertainty associated with the application, as of 1 September, of a new import regime that will entail much lower tariffs.

On the export side, several major exporting countries continued to face supply constraints and, in some cases, government-imposed export restrictions. Thailand has been an exception, and the country is now set to ship a record 9.2 million tonnes, 700 000 tonnes more than previously anticipated and 21 percent above last year. As some ordinary rice shipments continued to be reported on top of the high quality basmati, India’s export forecast was also raised to 2.8 million tonnes, which would be 36 percent less than in 2003. Although the Government is currently considering the reintroduction of subsidies to rice exporters, they are unlikely to be granted in the course of the year given the currently low level of stocks. Export forecasts for Japan, Egypt, Brazil and Uruguay in 2004 were also raised from the previous report, while they were reduced for China (Mainland), Myanmar and Pakistan, based on their export performance so far into 2004 and the scantiness of supplies. Sales by Viet Nam are still anticipated to reach some 4 million tonnes, only slightly more than last year, but somewhat above the Government target. In the United States, a fall in production last season and high domestic prices should limit exports in 2004 to 3.3 million tonnes, or 13 percent less than last year.

Global stocks revised down as the outlook for production deteriorates

World rice inventories at the end of the crop seasons ending in 2005 are now forecast to be about 97 million tonnes, 2 million tonnes less than foreseen in June. The revision reflects the deterioration of the 2004 production outlook in several countries but also the losses of rice reserves held by farmers that were affected by floods. Compared with their opening level, global rice inventories would be 6 million tonnes less, reflecting the difference between production and the expected utilization, which would have to be covered from the existing stocks. Much of the drawdown from last season would be concentrated in China (Mainland) and India, but some reductions would also be seen in Bangladesh and Indonesia.

International rice prices

International rice prices weakened in the past three months, and the FAO All-Rice-Price Index (1998-2000=100) fell to 103 in August, 6 points below the May level, reversing the upward tendency that dominated from March 2003 to May 2004. The declines were most pronounced for the Japonica and Aromatic rice indices, which lost seven points each. The Indica high and low quality indices fell only slightly, by 1 and 3 points, respectively. Actual quotations, however, did not follow a consistent pattern, with parboiled rice strengthening, on account of strong demand from Nigeria, South Africa and countries in the Near East.

Subdued import demand generally tended to depress quotations in the United States, with high quality Indica rice (US N.2 4%) dropping by US$69 per tonne to US$352 per tonne between May and August. Prices were also under downward pressure in Viet Nam and Pakistan. Quotations in Thailand held better despite the arrival of second crop supplies on the market and the softening of the Baht relative to the US currency, reflecting very strong sales over the period.

As for the short-term prospects, large supplies from the main crops, which will be harvested in the coming months, are expected to keep international prices under pressure. In general, however, the overall market situation still points to very tight supplies in a number of locations, especially in those countries that have scaled down their rice inventories. In addition, the announcement by the Thai Government, that it will increase procurement prices by US$24.5 per tonne, to US$154 per tonne for 100% white rice paddy, when it will launch its new procurement programme in November, is likely to provide additional support to world rice quotations.